Commentaries

PMC Weekly Review - December 1, 2017

A Macro View: November Monthly Recap

Domestic equity markets continued their move higher in November, with the major US indices closing the month at or near record-level territory. The S&P 500 Index, Dow Jones Industrial Average (DJIA), and NASDAQ Composite Index all closed the month at record levels. The DJIA surged above the 24,000 threshold for the first time ever. The past month has been largely focused on Congress’s debate over, and its potential to pass, tax reform legislation. Volatility remained at very subdued levels throughout the month as the prolonged bull market in equities has continued. The second estimate of third-quarter gross domestic product showed the US economy grew at a 3.3% annualized rate, which was the strongest reading since third quarter 2014. The growth reading was above both the 3.2% expectation and October’s 3% advance reading. One nontraditional investment that was heavily discussed across the industry was the parabolic rise of the cryptocurrency Bitcoin, which shot above $10,000 during November, with price gains of over $3,000, or +51% for the month. Bitcoin prices have surged roughly 10-fold since starting 2017 at $1,000, while many debate its potential future use, the applicability of the blockchain technology, or whether it is merely another bubble ready to burst.  

The S&P 500 Index gained +3.1%, pushing its year-to-date return to +20.5%, while the NASDAQ Composite Index posted slightly weaker returns of +2.3% but improved its year-to-date gain to +29.0%. The S&P 500 has now finished higher for 13 consecutive months, which is its best consecutive monthly run since the period March 1958-May 1959.  Large cap domestic stocks slightly edged out small cap equities, as the Russell 1000 Index was up 3.1% and the Russell 2000 Index gained +2.9%. Mid cap stocks performed well, with the Russell Mid Cap Index gaining +3.4%. Growth and value stocks mostly traded in line with each other, with only 2 basis points separating the Russell 1000 Value Index’s return of +3.06% and the Russell 1000 Growth Index’s return of +3.04%. However, in a year-to-date comparison, growth stocks have maintained their dominance, with a difference of more than 1700 basis points  in the year-to-date returns of the Russell 1000 Growth Index and the Russell 1000 Value Index: +29.2% and +12.0%, respectively. In terms of sector performance, Telecommunications was the strongest performer, gaining +6%, followed by Consumer Staples, which gained +5.7%. Materials and Information Technology were the main laggards from a relative standpoint, gaining only +1.0% and +1.2%, respectively. While Information Technology trailed most other sectors in November, the sector’s year-to-date +38.8% gain remains impressive, outpacing Healthcare’s +22.9% year-to-date return, the second-best performing S&P 500 sector, by nearly 1600 basis points. Energy prices rose, but metals were mostly lower, leading the Bloomberg Commodity Index to finish -0.5%.

International equity markets, for the most part, slightly trailed, on a relative basis, the strong gains experienced by domestic equities. The MSCI ACWI ex-U.S. Index increased by +0.8% for the month and is now up +24.4% year to date. International developed markets performance cooled slightly in November, but Eurozone growth expectations remain high for both the fourth quarter and for 2018. Eurozone companies have also boosted hiring at the fastest pace in 17 years, as economic data and the overall sentiment has continued to improve. The MSCI EAFE Index, which measures performance of international developed equities, gained +1.1%. Taking a breather from an already very strong year, emerging markets equities trailed on a relative basis, gaining +0.2%, but their year-to-date gain still clocks in at +32.5%, leading major asset classes. EM Latin America was the key laggard, posting a loss of -3% for the month. Regionally, Japan was a strong performer, gaining +3.0%, while Europe posted a lower result, gaining +0.2%. China continued the strength it has shown this year, gaining +1.6%, and the MSCI China Index is now up +51.2% year to date.  

Fixed-income markets traded mostly lower for the month, as yields moved higher. The yield on the 10-Year Treasury Note closed out November at 2.41%, adding 4 basis points from 2.37% at the end of October. Odds for a December federal funds rate hike have increased to a near certainty, roughly a 96% likelihood, for a third increase this year. Federal Reserve Governor Jerome Powell was nominated by President Trump to succeed Janet Yellen in early February as Chair of the Federal Reserve. The Barclays U.S. Aggregate Bond Index fell by -0.13% for the month, and is now up +3.1% year to date. Global bonds continued their outperformance of domestic fixed income, as the Barclays Global Aggregate ex-U.S. Index gained +2.1%, and is now up +10.2% year to date. Municipal bonds posted slight losses comparable to their taxable peers, losing -0.5%, and are now up 4.4% year to date. High yield fixed income posted weaker results than the Barclays U.S. Aggregate Bond Index, with a loss of -0.3%.

Download the full PDF

Source: Bloomberg

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.

Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.

Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.

Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.

© 2017 Envestnet. All rights reserved.